The volume of excess liquidity in the banking sector remained at a high level albeit it continued to decrease in the week ending May 2.
This decrease was mainly due to the fact that once again credit institutions started the week with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.
The net issue of treasury bills totalling Lm4 million, net payments in respect of cheque clearing totalling Lm4.5 million and the withdrawal by banks of Lm2.7 million in currency notes also contributed to the decrease in banks' excess liquidity.
This was partially offset by direct credits of approximately Lm3 million relating mainly to Treasury and retirement pensions, the net purchase by the Central Bank of Lm1.5 million worth of foreign currency from credit institutions together with the sale of Lm1.9 million treasury bills to the bank in the secondary market.
Accordingly, a 14-day term deposit auction was conducted by the Central Bank on Friday. The Central Bank invited tenders within the rate band of 3.7-3.75 per cent.
During this auction, Lm63 million were absorbed, Lm19 million less than the amount maturing on the same day. As a result, outstanding term deposits held at the Central Bank decreased from Lm129 million of the previous week to Lm110 million.
The weighted average rate resulting from this auction remained at 3.7 per cent, being the floor of the interest rate band at which the bank conducts its term deposit auction.
Only one deal, amounting to Lm1 million, was transacted in the domestic interbank market in the week under review. This was transacted in the two-week tenor at a rate of 3.7 per cent, unchanged from the previous rate.
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on August 1, 2003. Once again, demand for bills was higher when compared to the total bills issued by the Treasury.
In fact total bids amounted to Lm43 million, while the Treasury issued Lm34 million worth of bills. Since Lm29 million matured on the same day, the level of outstanding treasury bills increased by Lm5 million to Lm268.7 million.
The weighted average rate resulting from this auction was 3.5340 per cent, that is 7.88 basis points higher than previous rate of 3.4552 per cent. The new rate reflects a bid price of Lm99.1266 per Lm100 nominal.
Tomorrow, the Treasury will invite tenders for 91-day bills to mature on August 8, 2003. For the following week it will receive tenders for 90-day treasury bills to mature on August 14, 2003.
During the week under review, turnover in the secondary market amounted to Lm4,092,000 of which Lm1,942,000 were transacted with the bank in its role of market maker while Lm2,150,000 were transacted outside the bank. Most of this trading was conducted between institutional players.